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NAFTA Withdrawal Would Cost Retail Billions, Kearney Says

Prices for fresh food such as asparagus, watermelon, avocados and tomatoes could skyrocket as part of a $15.8 billion hit to the U.S. retail economy should the U.S. exit the North American Free Trade Agreement, according to a new study by consulting firm A.T. Kearney.

The study comes as officials from the U.S., Canada and Mexico meet in Washington this week to resume discussions on a new trade treaty. The Trump administration is reportedly seeking to address trade deficits with those countries—particularly as relates to the automobile market—as the talks reach a “make-or-break” stage.

Were the U.S. to exit NAFTA, retailers—and food retailers in particular—could absorb billions in new direct and indirect costs, the Kearney study said. The U.S. imports about $43 billion in food products from Canada and Mexico annually.

In addition to new tariffs, retailers could also bear costs of reductions in consumer spending and lost jobs.

“NAFTA has dramatically influenced the U.S. economy, the retail sector, and Americans’ standard of living. From the time it came into force, retailers have gradually become de facto importers, because their customers demand the products that NAFTA allows them to purchase easily, affordably, and with great variety,” said Johan Gott, A.T. Kearney principal and co-author of the study, in a release. “Retailers, then, are agents without the protections that other importers enjoy.”

New tariffs would cost retailers about $5.3 billion, with nearly half from food and beverages, the study said.

Products such as asparagus, grown primarily in Mexico, would see new tariffs of between 5% and 21.3% with NAFTA, the Kearney study said, while experiencing scarcity of supply and vastly higher costs in winter months.

A basket of produce would see costs rise by some 13% in the winter months, according to the study, with watermelon increasing from $4.88 to $5.71, and per-pound prices soaring on avocados (from $3.26 per pound to $3.42), tomatoes ($2.24 to $2.29) and broccoli ($3.31 to $3.97).

The study was commissioned by retail trade groups, including Food Marketing Institute (FMI), the National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA).

“There’s a lot at stake for American retailers, workers and consumers as the administration resumes NAFTA negotiations,” NRF President and CEO Matthew Shay said. “It’s clear NAFTA must be modernized, but we can’t lose sight of the fact that this agreement helps ensure that American families have access to products they need at prices they can afford. As this report shows, withdrawing from NAFTA would jeopardize countless U.S. jobs and force consumers to pay more everyday products like groceries and blue jeans.”

“This report helps illustrate how—thanks in part to our expanded trade with Mexico and Canada—U.S. grocery shoppers can wander the produce section in January and take home groceries to allow them to eat like it’s a June day,” said FMI President and CEO Leslie Sarasin. “Customers are accustomed to this type of access to fresh products and increasingly demand it in their efforts to make healthy choices. The quality, consistency and affordability that stems from the interconnectedness of our three economies helps guarantee that Americans have the most abundant, safest, healthiest and most cost-effective food choices in the world.”

RILA President Sandra Kennedy said the report "confirms that leaving NAFTA puts American jobs, family budgets and the entire North American economy at risk. We encourage the administration to modernize and preserve NAFTA to support the millions of American jobs along the supply chain that rely upon free and fair trade.”

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